From Minnesota Attorney General Lori Swanson in an article that ran this morning on TwinCities.com:

Swanson said that people in need of a loan would be “better off trying to find a bricks-and-mortar financial institution in Minnesota” that’s licensed. Consumers may be able to get a small line of credit with a local bank or credit union.

“The worst then they can do is to do business with these unlicensed” firms, she said.

Word and Way has a blogpost up that actually provides perspective on what could happen in Missouri if a prohibitive rate cap is put in place, albeit apologetic. The faith blog cited Kelly Edmiston’s, senior economist for the Federal Reserve Bank of Kansas City, study entitled “Could Restrictions on Payday Lending Hurt Consumers?” And the answer: Yes!

This research provides new empirical evidence on the potential benefits and costs to consumers of restricting payday lending. Edmiston says in his opening remarks:

“The analysis shows that restrictions could deny some consumers access to credit, limit their ability to maintain formal credit standing, or force them to seek more costly credit alternatives. Thus, any policy decisions to restrict payday lending should weigh these potential costs against the potential benefits.”

How, you say?

1. Lack of access to credit: “The most obvious and important cost of restricting payday lending would be the potential loss of credit access for consumers who may not have other sources of credit. Fully 50 percent of respondents to the 2007 payday loan customer survey responded that, when they secured their most recent payday loan, it was their only choice for short-term funds (Elliehausen). This assessment may have been inaccurate in some cases, but lack of knowledge about credit alternatives has the same effect as a true lack of access.”

Another important issue to keep in mind: “Without access to lenders, many financially constrained consumers may turn to family and friends. Payday lenders, however, report that many of their borrowers are reluctant to reveal their financial situation to others, or they have exhausted access to such loans (Caskey 2002). Others may not have family or friends with the financial means to help them.”

2. Credit standing. “When faced with unanticipated changes in income or expenses, a borrower may be forced to miss loan payments or even default on a loan. Unlike traditional lenders, however, payday lenders typically do not report to credit agencies. In the event that finances do not improve over the course of the loan period, defaulting on a payday loan would typically not harm the borrower’s formal credit standing. Thus, from this perspective, payday loans may be less risky than traditional loans.”

3. More costly alternatives. “While a payday loan under normal circumstances is costly to the borrower, its terms could be more favorable than those of other sources of credit. Clearly, if access to a traditional lender such as a bank is available, most would-be payday borrowers would be better off seeking short-term funds there. But few banks make small-dollar loans. Even if they did, few typical payday loan borrowers would have sufficient credit standing to acquire such a loan.”

Mom Says School Supply Deal Has Her Worried: MyFoxHOUSTON.com

A word to the wise to all consumers of payday loans: Use a CFSA Member! We want to make sure that situations like this don’t happen. Remember, using a CFSA Member means you’re doing business with a legitimate financial institution.

Our first two Best Practices state:

1. A member will comply with the disclosure requirements of the state in which the payday advance office is located and with federal disclosure requirements including the Federal Truth in Lending Act. A contract between a member and the customer must fully outline the terms of the payday advance transaction. Members agree to disclose the cost of the service fee both as a dollar amount and as an annual percentage rate (“APR”). A member, in compliance with CFSA guidelines where they do not conflict with applicable federal, state or local requirements, will further ensure full disclosure by making rates clearly visible to customers before they enter into the transaction process.
2. A member will comply with all applicable laws. A member will not charge a fee or rate for a payday advance that is not authorized by state or federal law.

You’ll know when you’re taking out a loan with a CFSA member if you see this seal.

Charlotte’s Action 9 is reporting that a Lincoln County woman said she applied for a payday loan online but canceled it. Now, collectors have been calling demanding repayment. Elizabeth Ingle said what she did online led to a series of threatening phone calls that have left her in tears. Click on the image below to watch the full story.

So what happens if you experience a collection scam? CFSA released a statement earlier this year about rogue debt collectors. Here’s a snapshot from what our Board Chair D. Lynn DeVault said:

“It is simply wrong to pursue criminal complaints against consumers who have defaulted on personal debt,” said D. Lynn DeVault, board chair of the CFSA. “Lenders should be working with their customers to figure out a solution. Our members offer borrowers an extended payment plan at no extra cost to the borrower and adhere to CFSA Best Practices which prohibit any criminal recourse.”

CFSA’s Best Practices state, “A member will not threaten or pursue criminal action against a customer as a result of the customer’s check being returned unpaid or the customer’s account not being paid.”

If you have consumers that are being called by someone claiming they have defaulted on a loan and will face criminal prosecution, please have them file a complaint with the Federal Trade Commission.

Here’s more information for consumers on what they can do during the call:

• Ask the caller to provide official documentation verifying the debt.
• Don’t provide or confirm any bank account, credit card, social security number, or other personal information over the phone.
• File a complaint with the FTC.

We, at the Payday Pundit, really love it when reporters only take one side of the story. That was sarcasm in case you didn’t catch that.

Hurts the economy? Really? Below are just some great stats that we wanted to share with our audience about the economic impact of payday lending in Missouri.

IHS Global Insight conducted a comprehensive study analyzing the economic impact of the payday loan industry nationally and in states with storefront locations. Findings illustrate “measurable and significant” economic benefits to local economies directly through employment, compensation and taxes, as well as through indirect and induced relationships with suppliers and other industries.

• The industry contributed over $596 million to Missouri’s gross state product (GSP) in 2007.

• The payday lending industry supports over 9,000 jobs[1] in Missouri including 4,152 people directly employed in 1,272 storefront locations. [2]
  • The industry indirectly created another 1,871 jobs in supplier industries.
  • Payday loan store and supplier industry employees induced the creation of 3,335 jobs through the purchase of goods and services using earned wages.

Quoting an article that ran in The Daily Texan today that used targeting in its lede in for the report: “… astutely recognized lenders’ predatory nature on working-class and financially inexperienced Austinites.”

Just a point of clarification, as this statement is misleading. CFSA members do not target certain demographics. Our members are located in population centers, and in convenient locations where customers live, work, and shop. As brick and mortar lenders, CFSA members are part of the neighborhoods they serve and are sensitive to the needs and concerns of our customers.

Let’s not forget that our service provides access to credit to more than 19 million banked customers across the United States who choose our product to meet their small-dollar, short term needs. Research shows that payday advance customers generally come from moderate income, working families, with most customers earning between $25,000 and $50,000 annually. Payday advance customers are educated; 90 percent have a high school diploma or better, with 54 percent having some college education or a degree. For more information on demographics, click here.

Just tryin’ to keep it real.

We couldn’t help ourselves, and had to submit our Board Chair’s last paragraph in her letter to the editor as our quote of the day:

“…it has been suggested that a 36 percent APR cap on payday advances would benefit consumers – but that is simply not the case. Such a restriction would serve to eliminate a product for which consumers have great demand and at a time when they can least afford to lose access to short-term credit. As we have seen in other states, when access to licensed and regulated payday loans is restricted, consumers often will turn to illegal and unregulated service providers for their credit needs.”

Our Board Chair D. Lynn DeVault issued a letter to the editor of the New Orleans Times-Picayune today commenting on the editorial provided by Edward Ashworth.

Here are a few key highlights from her letter (to read the letter in its entirety, click here):

Contrary to what Mr. Ashworth suggests, the payday advance industry is currently subject to a high level of regulation and oversight in the State of Louisiana. Where payday lending occurs, each state – including Louisiana through its Office of Financial Institutions (OFI) – has thorough licensing, regulation, and enforcement processes that govern payday advance companies. Additionally, Louisiana provides statutory limits on payday advance renewals, contrary to one of the main points of focus of the article.

…

Given the existing state law, as well as important industry requirements, it is not surprising that the Louisiana OFI received only 20 consumer complaints in all of 2009 regarding the payday advance industry. This incredibly low number of consumer complaints certainly calls into question Mr. Ashworth’s criticism about the OFI’s failure to “publicize the number and nature of complaints.”

The proposed ballot language in Missouri is misleading because 1.) It makes it sound as if there is no current limit on payday loan fees (there is); and 2.) It doesn’t say that the initiative would impose a 35 percent APR cap on short-term loans (which would prohibit such loans.) Finally — let’s be clear — there would be a significant financial impact: MO would lose about $596 million and nearly 10,000 jobs with more than $378 million in wages, according to IHS Global Insight. The story of dueling lawsuits is here…

Gotta love it when critics compare payday loans to the Big Mac. In their eyes, a Big Mac can make you morbidly obese, causing you health problems and eventually leading to heart disease. Sure, when eating them excessively this may be true—but let’s not forget that a consumer has the choice to eat as many Big Macs as they want. And most dieticians would tell you that moderation is key to living a healthy lifestyle.

While Edward Ashworth, the guest columnist who wrote the op-ed that ran on NOLA.com, talks of APR and the “sky-high” fees that consumers pay when using a payday advance, what he’s forgetting to acknowledge are the responsible lenders—like CFSA members—who encourage responsible use of payday advances and provide clear and transparent product information so that customers can make informed decisions.

Here is Best Practice #1 that CFSA Members must adhere to:

“A member will comply with the disclosure requirements of the state in which the payday advance office is located and with federal disclosure requirements including the Federal Truth in Lending Act. A contract between a member and the customer must fully outline the terms of the payday advance transaction. Members agree to disclose the cost of the service fee both as a dollar amount and as an annual percentage rate (“APR”). A member, in compliance with CFSA guidelines where they do not conflict with applicable federal, state or local requirements, will further ensure full disclosure by making rates clearly visible to customers before they enter into the transaction process.”

The reality is that making ends meet is often a struggle, but the idea that it can all be cured if payday loans were eliminated is far from the truth. The fact of the matter is consumers are looking for greater convenience and less cost. There are many financial service providers offering short-term credit products, competing for consumers’ business—from banks, credit unions, payday lenders, and the like. In fact, some of the options are more expensive than payday loans. According to a study conducted by Pew Health Group’s Safe Checking in the Electronic Age, if an overdraft was treated like a short-term loan, with a repayment period of seven days, the APR for a typical incidence would be over 5,000 percent. Another interesting fact: The median amount a customer can be charged per day in overdraft fees is $140. In addition, Americans are estimated to spend $38 billion on overdraft fees in 2011, an all-time high, according to Moebs Services. And that’s not even getting to disclosures. While payday loan agreements are typically one to two pages, Pew found the median number of pages for a checking account disclosure is 111 pages.

So what’s more important: Access or information? We say both.

Consumers need access to information and options to help them cope with their individual circumstances. In the end, it should be informed consumers who decide what works for them, whether it’s going to a bank or credit union,  utilizing a check cashing service, going the way of the prepaid card, or opting into a payday advance.

There’s no question that Americans are coming up short, struggling to make ends meet for several months at a time. It was just reported that 64 percent of Americans would utilize a source other than their savings account to satisfy a $1,000 unplanned expense. The survey also revealed that to resolve the problem, 17 percent of respondents indicated they would borrow the money from friends or family. That National Foundation for Credit Counseling’s release said that “asking those close to you for a loan can be awkward, and potentially negatively impact the relationship. Further, it can lead to “serial borrowing,” with the borrower always leaning on someone else to solve his or her financial problems.”

The bottom line is that if credit options were regulated out of existence or severely restricted, people would still come up short from time to time. If you eliminate access to one product, consumers will seek out another. And research shows it will likely be a more expensive and credit-damaging option.